NBFCs and their Impact on Real Estate in India

One of the essential milestones that everyone wants to achieve is owning a house. Whether one lives in the property or holds it purely as an asset, real estate offers a strong sense of security and long-term value. However, not everyone can afford to purchase a property entirely in cash. This is where the need for a loan for property purchase arises. While banks are often the first choice for home loans, there are instances when they may be unable or unwilling to sanction credit. This is where NBFCs in India come into the picture.

What are NBFC’S?

NBFCs, in simple terms, are financial institutions in India that provide banking and financial services without being classified as traditional banks. These institutions are registered under the Companies Act, 1956. Their primary functions include the advancement of loans, acquisition of shares, securities, stocks, debentures, bonds, credit facilities, and retirement plans, among others.

The Role of NBFCs in the Indian Economy

NBFCs cater to the diverse financial needs of customers who may be underserved by banks, offering support to new ventures and emerging businesses. They supplement banks in meeting the country’s growing financial requirements, especially in a population-driven economy. This includes extending credit to small businesses and the unorganised sector.

Although NBFCs do not function exactly like banks, they operate under regulatory oversight and follow guidelines laid down by authorities such as the Reserve Bank of India. With rising demand for housing and a growing middle-class population, NBFC home loans have become a crucial funding source for the real estate sector.

The primary role of NBFCs in Real Estate Development

NBFCs play a significant role in India’s real estate ecosystem. They help attract foreign investments, increase capital formation, and mobilise financial resources efficiently. This conversion of savings into investments supports higher activity in housing and infrastructure, strengthening property investment in India over the long term.

Since NBFCs focus heavily on infrastructure and construction lending, they have become preferred lenders for real estate developers in recent years. As banks tightened exposure to the sector, NBFCs stepped in to bridge funding gaps, emerging as reliable alternatives for both developers and homebuyers.

Impact on real estate investments 

With limited funding from banks, which reduced to 2 per cent as of March 2018, NBFCs accounted for 61 per cent of commercial real estate borrowing in the country. With an increase in population, there has been a rising demand for the need of infrastructure such as office and commercial spaces. 

The borrowing had grown up to 50% in the financial year 2016 – 2018.

What's next?

The Reserve Bank of India has taken several measures to strengthen the NBFC ecosystem. In 2018, NBFCs guidelines RBI introduced an Information Technology Framework to enhance operational security, efficiency, and risk management across the sector.

The role of NBFCs in supporting consumption and capital formation in MSMEs remains critical. To ease liquidity pressure, the government introduced a partial credit guarantee scheme allowing public sector banks to purchase high-rated assets worth INR 1 lakh crore from NBFCs.

For borrowers with limited credit history or lower scores, NBFC loan eligibility criteria are often more flexible compared to banks. While NBFCs are not banks, they continue to serve as dependable housing finance companies in India, making them a strong alternative for real estate financing.